Newman v. Ford Motor Co.

• Decision Date: 08 September 1998
• Docket Number: No. 80523,80523
• Citation: 975 S.W.2d 147
• Parties: Deborah J. NEWMAN and Terry Newman, Appellants-Respondents, v. FORD MOTOR COMPANY, Respondent-Appellant, CBS Redi-Mix and William McCoy, Respondents.
• Court: Missouri Supreme Court

Page 147

975 S.W.2d 147

Deborah J. NEWMAN and Terry Newman, Appellants-Respondents, v. FORD MOTOR COMPANY, Respondent-Appellant, CBS Redi-Mix and William McCoy, Respondents.

No. 80523.

Supreme Court of Missouri En Banc.

Sept. 8, 1998.

Thomas Strong, Clifton M. Smart III, James A. Burt, Springfield, for Appellants-Respondents.

Theodore J. Boutrous, Jr., Mark A. Perry, Washington, D.C., Gary R. Cunningham, Craig A. Smith, Springfield, for Respondent-Appellant.

Thomas O. Baker, James R. Jarrow, Kansas City, Hugh F. Young, Jr., Reston, VA, Aaron D. Twerski, Brooklyn, NY, James A. Henderson, Jr., Ithaca, NY, for Amicus Curiae.

WHITE, Judge.

Deborah Newman was paralyzed after the Ford Aerostar she was driving was rear-ended by a dump truck. Ms. Newman and her husband sued the owner of the truck (CBS) and its driver (William McCoy) for negligence and Ford for defective design of the seat in which Ms. Newman was sitting. After trial, a jury assessed the Newmans' damages at $12.5 million and apportioned fault as follows: seventy percent to CBS and McCoy, twenty-five percent to Ford, and five percent to Ms. Newman. The judgment is affirmed as modified.

Facts

On May 26, 1993, Deborah Newman was driving her 1988 Ford Aerostar on Highway 125, in Greene County, Missouri. As she was stopped behind another car waiting for it to make a left turn, Mr. McCoy's truck, loaded with gravel, approached down a hill from behind, moving at approximately forty-five miles per hour. After realizing that the cars in front of him were stopped, Mr. McCoy attempted to stop his truck, but was unsuccessful and impacted the rear of Ms. Newman's car at approximately thirty miles per hour. Ms. Newman's car was thrown forward and collided with the rear of the car ahead of her. While Mr. McCoy, the other two passengers in Ms. Newman's car, and the five occupants of the first car suffered relatively minor injuries, Ms. Newman's seat collapsed under the force of the impact, and she was thrown backwards; her shoulders struck the back seat, fracturing her spine and causing her to become paraplegic.

Disclosure of Agreement Between Plaintiffs and the CBS Defendants

Prior to trial, the Newmans and the CBS defendants (CBS and McCoy) entered into an agreement. They agreed that, in the event of a verdict against the CBS defendants, the Newmans would satisfy their judgment solely from CBS's liability insurance policy, ¹ which limited their recovery to the approximately $ 468,000 remaining under the policy limits. In return, the CBS defendants agreed not to appeal any adverse judgment and to employ a specified law firm--not associated with CBS's insurer--to defend it from that point forward. Ford argues that the failure of the trial court to grant its requests to inform the jury of this agreement was reversible error.

The general rule is that evidence of settlement agreements is not admissible, absent a clear and cogent reason, because they tend to be highly prejudicial. ² An exception is made to this general rule for so-called "Mary Carter" agreements, ³ which this Court has described as follows:

Mary Carter agreements occur in multiparty litigation when fewer than all defendants settle with the plaintiffs. The term encompasses a wide variety of settlement arrangements that are limited only by the ingenuity of counsel and the willingness of the parties to sign. A typical Mary Carter agreement has the following features:

1) The liability of the settling defendant is limited, and the plaintiff is guaranteed a minimum recovery;

2) The settling defendant remains a party to the pending action without disclosing the full agreement to the non-settling parties and/or the judge and jury, absent court order; and

3) If judgment against the non-settling defendant is for more than the amount of settlement, any money collected will first offset the settlement so that the settling defendant may ultimately pay nothing. ⁴

Ford argues that the agreement here is a Mary Carter agreement and, as such, should have been disclosed to the jury unless the court found that disclosure would have created a substantial risk of undue prejudice or confusion. ⁵ The trial court neither made such a finding nor allowed disclosure. Rather, the trial court concluded that, since the agreement in question was less prone to deceive the jury than the typical Mary Carter agreement, measures short of disclosure would suffice to assure fairness.

Ford maintains that a Mary Carter agreement exists whenever a settling party remains at trial, and that such an arrangement must always be disclosed to the jury. Although the presence of a settling party at trial is a necessary condition for a Mary Carter agreement to exist, ⁶ it is not sufficient. A number of the typical indicia of a Mary Carter agreement, as described in Carter, were not present here. Although the agreement was not disclosed to the jury, it was not kept secret from the trial court or the non-settling defendant. The Newmans were not guaranteed a minimum recovery under the agreement, nor was any judgment against the CBS defendants to be reduced or offset by any amounts recovered from Ford. To be sure, Carter's mandatory disclosure rule is not limited to agreements that precisely match its definition of a Mary Carter agreement. In particular, an agreement that contains the "distinctive features [that] distort the adversarial process and potentially undermine the right to a fair trial," such as one that gives "the settling defendant[ ] direct financial interest in the amount recovered against any non-settling defendant," must be disclosed absent a specific finding that disclosure would be unduly prejudicial. ⁷ While the agreement here did not contain the prototypical features of a Mary Carter agreement, which generally mandate disclosure, we agree with Ford that any agreement whereby a party remains at trial with an interest that remains hidden from the jury raises questions of fairness.

The key danger of this sort of agreement is that the settling defendant will fail to operate as an adversary and, instead, seek to bolster the plaintiff's case against what a factfinder, absent knowledge of the agreement, would assume was its own interest. This is most dramatically a danger in the traditional Mary Carter agreement, where the settling defendant has an incentive to inflate the damages of the plaintiff, since its exposure is reduced proportionally to the full amount of damages awarded, exactly the opposite of what an uninformed tribunal would expect. This distortion may also be present, in a more subtle form, where the defendant has completely settled the case and, thus, remains involved in litigation only because required to do so by the agreement. ⁸ The distortion of the adversarial process is less pronounced here, since the interests of the parties remained much the same after the agreement. The CBS defendants, before the agreement, had an incentive to try to minimize their own culpability and to magnify that of Ford and of the plaintiff herself. The agreement did little to change that. The CBS defendants' interest remained to minimize the award against them, by blaming Ford or the plaintiff. Contrary to a typical Mary Carter agreement, the CBS defendants retained an interest in making sure that the total amount of damages was as small as possible. Additionally, the CBS defendants did not remain a party to the case solely because the agreement required them to; instead, they actively participated in the litigation because it was in their direct financial interest to do so.

It is also difficult to see how this agreement could have been disclosed to the jury without creating severe prejudice to the CBS defendants. As Carter notes, even when a Mary Carter agreement is present, disclosure of its terms must be carefully limited to avoid impermissible prejudice. ⁹ Specifically, matters like amounts of settlement and references to insurance ought to be redacted from disclosures to the jury. ¹⁰ Here, the essence of the agreement was to limit recovery to a specified amount, to be paid from an insurance policy. No payment was received by the Newmans, and the CBS defendants were not released from liability. Very little in the agreement could have been permissibly disclosed to jurors.

The fairness interest served by disclosure of the true alignment of the parties to the jury must be weighed against the countervailing interests in encouraging settlements and avoiding prejudice to settling parties. Since agreements to settle claims between parties who nevertheless remain at trial are virtually limitless in their possible permutations, this balance will necessarily be struck differently depending on the facts of each case. Thus, we must rely on the sound discretion of the trial court to ensure that, whatever the circumstances of a particular case, the integrity of the adversary process is preserved. The measures actually taken by the court here are instructive of what may be done, short of disclosure, to ensure true adversariality of the parties. Throughout the trial, the court deferred ruling on Ford's motion to disclose the agreement in order to ensure that CBS would provide an appropriate and vigorous defense. The trial court allotted two of the defense's three peremptory strikes to Ford and also altered the order of closing argument so that Ford would argue after CBS, reducing the opportunity for the CBS defendants to undermine Ford's defense without allowing Ford to respond. We reiterate that the best cure for the problems created by Mary Carter agreements is disclosure to the jury. ¹¹ But even less collusive agreements--like the one at issue here--raise questions of fairness. The trial court has both the duty and the discretion to fashion procedures that ensure fairness to all litigants in these situations. Here, the trial court took commendable efforts to ensure that the pre-trial agreement did not disrupt the adversarial nature...